Esin Attorney Partnership


In this, our third and final post in our series on the newly adopted Provisional Article and the effect on financial restructuring in Turkey, we explore the considerations and recommendations of Esin Attorney Partnership on the tax front.

1) Financial Restructuring Considerations

The Provisional Article provides various tax reliefs and exemptions in relation to financial restructuring transactions.

The Omnibus Law’s general preamble states that the purposes of the amendments to the Banking Law are (i) resolving financial issues that have or may arise in the real sector due to the macroeconomic developments (ii) restoring solvency to debtors in financial trouble by facilitating the operation of reconciliation platforms that include financial restructuring programs; and (iii) establishing the legal infrastructure enabling debtors to comply with their obligations towards financial institutions.

With those broad purposes in mind, various tax exemptions were provided by the Provisional Article for financial restructuring transactions implemented under the Framework Agreements process.

  • These financial restructuring transactions are exempt from fees under the Law on Fees No. 492 (including judiciary fees), and the documents to be issued in connection with the restructuring (including framework agreements and financial restructuring agreements) are exempt from stamp tax under the Stamp Tax Law No: 488 (the “Stamp Tax Law“).
  • Amounts collected by creditor institutions are exempt from the banking and insurance transaction tax under the Expenditures Taxes Law No. 6802.
  • Loans granted and to be granted in connection with such restructurings are exempt from the resource utilization support fund deduction.

However, the tax exemptions would only apply to transfers between the transferor and the original creditor (and transfers between creditors) such that, for example, if the assets and collateral in question were restructured by a party that acquired it who then proceeded to transfer, that would result in above tax implications, which would only make restructurings more challenging.

This week we bring you part II of Esin Attorney Partnership’s report on the newly adopted Provisional Article and the effect on financial restructuring and NPL reform in Turkey.  Last week’s post is available here.   In this post they provide additional insight into the newly adopted legislation and discuss their recommended actions on the legal front.

1) Financial Restructuring Considerations 

Universal Effect on All Creditors: While the Framework Agreements provide for a statutory regime, it is not intended to provide for a properly “collective” insolvency procedure including all creditors of a debtor. As drafted, the Framework Agreements only bind those who have signed it. As such, many parties who commonly operate in the credit markets in Turkey (including many foreign financial institutions) will work outside the Framework Agreements, and compromises struck by and between the parties to the Framework Agreements will not bind non-signatories. The general situation clearly requires a restructuring regime to be instituted that would have collective effect. Otherwise, there will be continuing asymmetry between the treatment of signatory creditors, on the one hand, and non-signatory creditors, on the other, because non-signatory creditors will be able to continue with their enforcement proceedings at a time when the debtor is in the process of restructuring its financial debts and signatory creditors are subject to a moratorium. Such a situation is likely to force debtors to perform all their due obligations owed to non-signatory creditors, but not vis-a-vis signatory creditors. This very effect will discourage non-local creditors from becoming parties to the Framework Agreements, as well as discouraging debtors from investing time and effort in attempting to achieve a financial restructuring through the Framework Agreements process, in particular, where such debtors have a number of non-signatory creditors.